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Is Wholesaling Real Estate Legal In Alabama?

Located deep in the heart of Dixie, Alabama is a thriving epicenter for all manners of commerce. 

Locals enjoy warm weather and a relaxing prototypical lifestyle that attracts many people to the ‘Bama way of life.

That creates a healthy demand for real estate, and while many people work in this field following a traditional path as a broker or agent, several others want to know about breaking in as a wholesaler.

The prospect of a flexible and potentially lucrative career as a wholesaler starts with a single question.  Can I even become a real estate wholesaler in the state of Alabama?

Let’s take a look at the answer to that question and several more.

 

What Do You Need To Know About Wholesaling Houses in Alabama?

Wholesalers are very active in Alabama.  There are several groups and meetings that help wholesalers with all aspects of putting together deals. 

You can search online for local gatherings, but do your homework because the Covid pandemic has changed or canceled a large number of these.  Another possibility is to search for Real Estate Investor Associations (REIAs) in Alabama.  This is another way to network and build relationships with many types of real estate professionals in your local market.

REIA Meetings will give you the opportunity to learn, grow, network, and build relationships with all types of real estate professionals in your local market!

As wholesalers quickly find out, the key to successful real estate wholesaling in Alabama is that there are statutes and rules that must be followed to stay compliant with the law.

alabama real estate commission wholesaling

The good thing about wholesaling is that there are just a few key things to remember.

First, there are three primary ways to wholesale a property. 

You can find a piece of real estate with a motivated seller and after you finalize a purchase and sale agreement with that person, you can then enter into an Assignment of a Contract with a third party.

Being under contract to purchase a property gives you the right to market the real estate contract itself (which is basically marketing the right to buy the property). 

However, you can’t market the property itself. Many newbies to wholesaling make this mistake and unfortunately, they wind up in some legal trouble as a result.  Only licensed Realtors have the right to market the property.

Two other wholesaling strategies are The Double Close and the Buy and Sell method.  They are similar because both are comprised of two separate transactions. 

In both, the wholesaler buys the property from the seller.  Then the property is sold to a third party, either within a day or two in a Double Closing, or several days and weeks later with a Buy and Sell agreement.

Unlike the Assignment of a Contract, these two methods do require that adequate funding is in place because the wholesaler is participating in the actual transaction.

The flip side to this, unlike the Assignment of a Contract method, is that the wholesaler does not need to reveal how much profit they will make from the two separate transactions.  wholesaling real estate legally

For all of these methods, you don’t need a real estate license, though some people do go through the extra effort and expense.

Also, transparency is crucial.  Wholesalers must let property owners know about their intentions, just like property owners must provide buyers with disclosures about the property.

 

Is Wholesaling Real Estate Legal in Alabama?

Yes, as long as you follow Alabama state rules and regulations governing real estate transactions. 

The Alabama Real Estate Commission (AREC) oversees state laws, including licensing requirements for Realtors and Brokers.

The Commission's goal is to protect the public interest in all real estate transactions.  It is also an excellent source of information for all members of the Alabama real estate profession.

As a wholesaler, although you are not required to be licensed, you must still remain compliant with all real estate laws and procedures.

To learn more about what these specific laws are, you can access the AREC and find consumer information on the following topics:

  • Agency/Brokerage Services
  • Real Estate License Status in Alabama and Other Jurisdictions
  • Home Inspections
  • Environmental Issues
  • Community Resources
  • Stopping Mortgage Fraud
  • Landlord-Tenant Act
  • Complaints (against brokers or salespersons)

Another excellent source of information is the Alabama Association of Realtors (AAR), among other resources, this organization specifically addresses Alabama Contract Law in two Parts. 

Part I focuses on Offers.

Part II focuses on Other Important Concepts in Contract Law.

 

Do You Need A Real Estate License To Wholesale Real Estate In Alabama?

Wholesaling real estate without a license is legal in Alabama.  However, you must understand there are certain limitations an unlicensed wholesaler faces.

The most important of these is that without a license, you can’t market an actual property for sale.  As a wholesaler, when you place a property under contract with a seller, you can only market the rights to assign the contract to a buyer.  There is a big difference between the two activities.real estate license wholesaling alabama

Also, as a wholesaler, you collect a fee when you assign a contract agreement you have in place with a seller.  As a licensed real estate professional, you will earn a commission when you sell the property.

Alabama Code Section 34-27-30

According to Section 34-27-30 of the Alabama State Code. A license is required for the following real estate related activities in Alabama.  (It’s important to note that wholesaling is not on this list.  As long as you market the contract and not the property, you should be in good shape.)

"It shall be unlawful for any person, sole proprietorship, partnership, corporation, branch office, or lawfully constituted business organization, as the Legislature may from time to time provide, for a fee, commission, or other valuable consideration, or with the intention or expectation of receiving or collecting a fee, commission or other valuable consideration from another, to do any of the following unless licensed under Articles 1 and 2 of this chapter: 

  1. Sell, exchange, purchase, rent, or lease real estate situated within the State of Alabama.
  2. Offer to sell, exchange, purchase, rent, or lease real estate situated within the State of Alabama.
  3. Negotiate or attempt to negotiate the listing, sale, exchange, purchase, rental, or leasing of real estate situated within the State of Alabama.
  4. List or offer or attempt or agree to list real estate for sale, rental, lease, exchange, or trade situated within the State of Alabama.
  5. Auction, offer or attempt or agree to auction, real estate situated within the State of Alabama.
  6. Buy or sell or offer to buy or sell, or otherwise deal in options on real estate situated within the State of Alabama.
  7. Aid, attempt, or offer to aid in locating or obtaining for purchase, rent, or lease any real estate situated within the State of Alabama.
  8. Procure or assist in procuring of prospects for the purpose of effecting the sale, exchange, lease, or rental of real estate situated within the State of Alabama.
  9. Procure or assist in the procuring of properties for the purpose of effecting the sale, exchange, lease or rental of real estate situated within the State of Alabama.
  10. Present himself or be presented as being able to perform an act for which a license is required."

To protect against the possibility of conflicts or violating state laws, some wholesalers choose to get a real estate license or become a real estate broker.  The Alabama Real Estate Commission oversees licensing in the state and ensures that real estate agent licensee candidates meet a series of requirements to meet licensing standards. 

 

What Are The Wholesaling Laws in Alabama?

Specific laws regarding real estate deals are found in Title 34 of the State Code of Alabama. Title 34 is divided into several Articles and these are further divided into specific Codes. 

wholesaling laws Alabama

For example, Article 1 details General Provisions.  Those General Provisions are divided into the following Codes:

AL CODE § 34-27-1

AL CODE § 34-27-2

AL CODE § 34-27-3

AL CODE § 34-27-4

AL CODE § 34-27-5

AL CODE § 34-27-6

AL CODE § 34-27-7

AL CODE § 34-27-8

AL CODE § 34-27-10

AL CODE § 34-27-11

The remaining Articles are focused on the following areas:

  • Article 2. Licenses
  • Article 3. Vacation Time-Sharing Plans
  • Article 4. Real Estate Consumer's Agency and Disclosure Act
  • Article 5. Interference with A Real Estate Brokerage Relationship 
  • Article 34, Chapter 27 deals specifically with Licensing provisions and is quite detailed.

You can access the full Alabama Real Estate Commission License Laws here.

There is also a detailed Licensing FAQ page that provides a lot of good information regarding a variety of real estate licensing topics.

 

Is Co-Wholesaling Real Estate Legal in Alabama?

Co-wholesaling is the act of partnering with another like-minded individual to wholesale properties in Alabama.  This is a viable option for many people, especially those who want more resources available to them as a means of completing wholesaling deals.

Often, a joint venture between co-wholesalers will divide tasks and responsibilities that play to each partner’s strengths.  This often means one person will do the legwork of searching for properties to place under contract while the other partner provides cash buyers.

Co-wholesalers may also combine resources to bring the contract, legal, or other real estate investing expertise to the table.

co wholesaling

It’s important to maintain an open and transparent relationship with the seller, identifying all parties in the transaction. 

While a co-wholesaler could pull out, change deal terms, or engage in other questionable activities, this is rarely the case.  However, you need to be aware of these potential challenges to help you identify and choose partners you trust.  To protect yourself, it’s smart to execute a co-wholesaling agreement or joint venture agreement to protect your legal interests. 

Other than these parameters, all laws and statutes governing co-wholesaling are the same as wholesaling.

 

Is Reverse Wholesaling Real Estate Legal in Alabama?

Reverse wholesaling is simply juggling the order that you structure a wholesaling deal.  It means that you line up real estate investors first (often from a prequalified buyers list), and then find appropriate real estate properties that fit their investment objectives. 

Many wholesalers like this approach because it creates a more reliable exit strategy, builds closer bonds with cash buyers based on the types of investment properties they want, and aligns wholesalers with private and hard money lenders.

All the other steps are the same, and as such, Alabama places no separate restrictions on reverse wholesaling in the state.

 

How Can I Legally Wholesale Real Estate In Alabama?

It’s fairly simple.

Learn the processes and strategies.

Learn the laws.

Don’t break the laws.

Be transparent.

Seek out an experienced real estate attorney, and ask questions and get help when you don’t know if you’re on the right side of the law or not.

The fundamental key is being well versed on what the most common methods of wholesaling are.

With an Assignment of a Contract, the wholesaler is a middleman who finds and seller and places their home under contract with the right to buy the property.  This gives the wholesaler the right to assign the contract, collecting an assignment fee for their efforts.

Under a Double Close, a wholesaler buys a property and then immediately executes a purchase contract and sells the property (often on the same day) to a cash buyer.

In a Buying and Selling scenario, a wholesaler buys a property and then weeks or months later sells the property to an investor/rehabber/house flipper who will make strategic improvements and flip the property to a final buyer at an appropriate time.

Many people find a lower barrier to entry into wholesaling by assigning a contract because this method requires no money to complete a deal.  The wholesaler is strictly a middleman.  The drawback when assigning a contract is that you must disclose the amount of a fee you’ll receive.

With a Double Close or Buy and Sell deal, you are executing two separate transactions in each case.  While these methods require financial resources to facilitate financing, the flip side is that with this type of wholesale deal, a wholesaler does not need to reveal how much they will make in profit when selling the property.

 

Final Thoughts

Alabama has many attractive and active real estate markets stretching throughout the state.  There are several potential opportunities you can find in Mobile, Montgomery, Birmingham, Huntsville, and other outlying areas.

Consider some key statistics of the state's five largest cities:

best places to wholesale real estate alabama

Source: Wikipedia

You can reach out to Realtor groups in these areas for more information regarding wholesaling opportunities.

The statewide Realtor organization is the Alabama Association of Realtors (AAR), which may also provide some valuable insights.

Also, consider contacting the Alabama Real Estate Commission if you have questions on the areas they govern

With a measure of creativity and a dose of hard work, you have the tools you need to build a robust wholesaling business in short order.

Capitalizing on structuring deals is possible whether you’re looking to wholesale single family homes, condos, apartment buildings, commercial properties, or even raw land. 

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